Buying Existing Store

[Anonymous]

I'm new to the whole business, but have been researching alot. Tell me if I'm crazy. I just signed a letter of intent to purchase an existing store. $225K for 26 washers, 30 dryers,4 vending machines, and other equipment. Revenue of $155K, Net Profit of $50K for the last 3 years. The numbers seem to work and the tax benefit is big plus. 12 years remaining on lease. What am I missing? Pros, does this seem to be a descent deal?

[Kitty]

What is the size and vend price for the washers?

[Gary C]

Unless everything is new it sounds a little high. It's 4.5 x net I think you would need a longer lease. Expenses of 105k on gross of 155k seems high too. I net 45k on a mat that does 80k sales unnattended. Is this one unattended? How much time do you have to put in a week?

Gary

[Anonymous]

The store is attended with 2 part time employees. Payroll expense is $26K. Rent is $28k on 2400sq ft.

[Gary C]

How much of your time will it require?


Gary

[BWJR]

In this business you should be able to re-coup your investment in about three or four years. Your deal puts you at 4.5 years. It seems a little high. That being said, this is a very profitable business and as long as the equipment is relatively new, you can survive. Keep in mind, that unless you are paying cash, your debt service for 225K is going to be huge unless you can spread it out over 8 years or more. Hopefully you have a number of escape hatches in your offer agreement to get out of the deal if you need to.

Good luck,

BWJR

[pete f]

I like to take an opposing view sometimes, nobody here knows that. 4.5 times cash flow, you are paying attendants to do work you could ( and some cases should) do yourself, so add that money and your ratio is much lower. The other side is it is hard to find investments that yield high amounts anymore, even if you have to work at them. Apartment buildings, commercial buildings, best cap at 6-7%. Years ago it was 10+, so maybe a mat that yields 25% now is not so bad. You, and all of us, are buying cash flow, and price it as the likelihood of us getting that cash flow over a period of time. If this mat has machines that are reasonably good shape, I would want an average age of no more than 5-10 years (giving leeway here) and you work it, you can do well. It is not a collect the cash and go business, you are more like a doctor on call 24/7, just get paid much, much, much less. But run it right, and you have a nice income for the time you really spend. It takes a few years to get to that stage, get the place how you want it, reinvesting, updated, etc.

As BWJR mentioned, and I would remind, debt service will be harder to make, if you try to leverage. Put 50% in cash, should have no problem with the bumps you will encounter along the way.

If the vend prices are very low, you may have a possible extra you can grab, as you raise them, as Kitty was referring to.


And you will need time to look after it.

Originally posted by cleandry1
I'm new to the whole business, but have been researching alot. Tell me if I'm crazy. I just signed a letter of intent to purchase an existing store. $225K for 26 washers, 30 dryers,4 vending machines, and other equipment. Revenue of $155K, Net Profit of $50K for the last 3 years. The numbers seem to work and the tax benefit is big plus. 12 years remaining on lease. What am I missing? Pros, does this seem to be a descent deal?

[fluffy]

I agree with Pete (naturally). If you look at alternate investments, a properly run and positioned laundry has one of the highest return premiums out there. I don't think 4.5 x net is too high.

We've discussed valuation a number of times - do a search for more information.

[Gary C]

It's to high if the eqipment is old and needs to be replaced soon or a short lease. Not that it's the case here. My point is there are many variables. So just step lightly at that price. It may be a fair deal just don't rush into it. It looks like you may be able to cut expenses and that will make it a better deal.

Gary